Don’t Predict. Prepare.
September 29, 2020 | BY Our Partners at Equinum Wealth Management
If you’re still around at this point of 2020, you’re probably expecting something crazy to happen. Will there be a release of a new and improved COVID-20? Will there be a civil war when half the country doesn’t like the election outcome? Are we in for a zombie apocalypse, perhaps?
While we do know that crazy stuff can happen, we can never predict it.
Financial media on the other hand, lives on predictors and prognosticators.
Every day, talking heads come onto CNBC and Bloomberg to gab about and predict the future of the economy, the stock markets and more. (In all honesty, they know nothing. But hey, something’s gotta fill their programming.)
We don’t like predictions because we know they don’t actually represent the truth. And even if they did, that information might not be as helpful as you’d think. Just imagine having a time machine where you could see future news, but not its financial outcome. All you’d need to do to know how the economy and stock market would look, is interpret the news.
So, it’s January of 2020, and you check into your magical machine. Alas, you see that a pandemic will be unleashed into the world, where air-travel would come to a halt, live sports would take a total sabbatical and the entire globe would be on an obligatory home confinement for months. You see that the virus will leave forty million Americans jobless, millions of people infected, and hundreds of thousands – dead.
Okay, now what would you do with your portfolio? Probably go to all-cash. Maybe you would buy some gold?
With the benefit of hindsight, cash was probably the worst asset class to be in. Gold did perform very well, but regarding the bulk of your decision, you would have been dead wrong. You would have never predicted that although thousands would die each day from the virus, the stock market would make a new all-time high just a couple of months afterwards.
Just think: If we can’t even predict the financial future knowing the news in advance, we definitely don’t stand a chance without that advantage.
Our take at Equinum is: stop predicting what the future holds. Instead, prepare and be ready for many diverse outcomes, including the crazy stuff.
If you watch financial media, your head should be spinning from all the current predictions coming from all the pundits sitting in their living rooms. (Although their bookshelves of borrowed books do make them look intelligent.)
Will we have hyper-inflation due to all the helicopter money being dropped in the form of stimulus and unemployment benefits, or deflation due to the millions of people out of work?
Will the market retest the March lows, or will the amazing ascent we are currently on, continue?
Will New York real estate have a Humpty Dumpty fall, or is this a once-in-a-life-time opportunity where the king’s horses and men come through?
Again, we don’t predict. But we do need to prepare.
And how do we do that?
Well first and foremost, we want to have an all-weather portfolio. That is, a properly diversified portfolio where you have a mix of asset classes and proper asset allocation.
At Equinum, we have made some changes to our clients’ accounts. We have swapped some of the government bonds in our portfolios to TIPS, which are inflation protected. So, if inflation gets out of control, clients won’t lose purchasing power.
We added some real assets to portfolios, like precious metals and real estate. These tend to do well in cases of inflation.
Income producing companies can also be a good hedge as well.
One more thing to the renters out there: It might be a prudent idea to consider purchasing a home. If we do have a pickup in real inflation, your rent can double over the next decade or so. But if you lock in a mortgage, your price is locked. To sweeten the deal, mortgage rates are the lowest ever recorded by Freddie Mac in a series that goes back to 1971.
If you have personal questions or concerns, please reach out to us at [email protected] to set up a call.